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Wednesday, May 23, 2007

Efficiency versus Equity

Markets produce efficient outcomes when they work properly, but the outcome may not be equitable according to your or my sense of fairness.

During a long drive yesterday I started thinking about the goods and services where I would allow equity to override the market outcome, i.e. where I would allocate goods and services by some means other than the price allocation mechanism. These are the goods and services where it wouldn't be fair, in my view, to exclude someone just because their income is too low. It started when I passed Mount Shasta and thought about all the places that should never be closed to people just because they do not have sufficient means.

I should try to be clear about what I mean. I am not saying that everyone should have equal access to everything on this list, or that the price system shouldn't allocate goods when the price is not exclusionary. That is, to take one example, the price of water is low enough so that most people can afford it as part of their budgets (and we make public sources widely available), it doesn't bust the budget to buy water and the price system can be used to prevent wasteful usage. But if the price were so high that there were people who could not afford it at all or could not afford it without substantial sacrifice, then we would have to transfer money from the rich to the poor to make sure people had enough water to meet their basic needs. We do this now with energy - people who cannot afford to heat their houses in the winter are subsidized to ensure their basic energy needs are met. We don't think it's fair that someone should have to suffer the cold because they cannot afford to heat their house without sacrificing other critical needs.

Here's the list of goods and services I came up with where I would be willing to override the market outcome if it excludes people from participating, as much as I can remember from yesterday anyway:

Natural wonders, wilderness, the oceans, the mountains, etc.: We solve this through means such as national parks where, though there is a fee, it is usually low and allocation is done by lottery, by first-come, first-serve, etc. rather than through the price mechanism. I don't have a lot of complaints about this one, the the increasing move toward "pay to play" does raise equity concerns.

Information and education: This, of course, is the idea behind programs such as public education, Head-Start, public libraries and attempts to ensure access to the internet for all, even those who cannot afford computers. I think this is essential. My view is that if we overspend in these areas, so what? But not everyone agrees.

Health: Everyone should have access to health care. We don't do as well here as I'd like to see - it's inequitable as it stands.

Food and housing: These seem obvious and we recognize that people need to have food and shelter. But I think we could do a little better here too.

Garbage services, sewage services, phone service, etc.: Basic city services ought to be available to everyone. I doubt this is too controversial.

Travel: Price should never be a barrier for basic travel within cities and between cities. The basic means of travel - roads - should be available to everyone. I worry about the movement toward toll roads in this regard, but this turned out to be hard to think through and I don't have a good summary statement here. But as I was driving home from seeing my dad on his birthday, it just seemed like everyone ought to be able to do that. I'd make sure everyone could have driving lessons too. Schools used to do this, but I think that has changed. I don't know if driving lessons are now costly enough to be prohibitive for some, but if so, they shouldn't be.

Air and water: I talked about these a bit already, and these seem fairly obvious. But we should also be sure that income does not force people to endure pollution of air and water of differing degrees. That doesn't seem very equitable, though there is some evidence of this happening.

Sports: I don't know if all will agree, but I would make sure everyone had the opportunity to participate in sports. I think we do pretty well making sure that team sports are available to all. It's in the team's best interests to put the best possible team on the field, so steps are usually taken to make sure opportunity is extended to all. On individual sports, I'm not sure we do as well because there's less incentive to make the sports widely available. Tennis seems pretty available, but other individual sports don't seem as open to all (golf, e.g.). Still, overall, I think we do pretty well with equity here, even on individual sports.

Hunting and fishing: This might go under sports. In any case, if we are going to allow these activities, they ought to be available for all, particularly people who might actually benefit from the food it provides. I almost left it off - it doesn't seem that necessary today as it once was - but this is a traditional area for concerns of this type. Who had access to what mattered a lot at one time.

Art and books: Books were covered above under information, but I'm thinking more of fiction here. We have public libraries, public art museums, ballets do matinées for kids and also at very low prices for others. I realize some of this will be in private hands, but our culture should be available to everyone.

Music lessons: Maybe this should come under art and books, but here I have creation of art rather than consumption of art in mind. Every kid should be able to play a musical instrument, sing, etc., and have instruction. I'm not sure where to draw the line, but it would be okay with me if everyone had the chance to learn to play, say, the piano and I'm not sure they do. Schools used to do a good job with this, but it seems less so now and we could do better. I am the worst artist in the world, or nearly so, so I tend to forget about other kinds of art. I don't even know if people need art lessons in the same way they need music lessons, but if they do, I'd include those here too. Dance comes to mind as well.

This was a pretty casual exercise, so what did I forget or get wrong? Where and how would you draw the lines?

From Chris in comments:

Add security (you shouldn't have to be rich to be safe from crime).

And from Robinia:

I'm not that attached to the idea myself, but, over centuries, access to a decent burial has been a real issue for folks, and sometimes unaffordable.  I'd like to see a cultural shift such that the permanent use of land resources to house the dead is no longer seen as a basic human need, but, until then, it remains something that should not be denied based on inability to pay.  I think this was actually one of the first societally-ensured items (indigent burial grounds).

    Posted by on Wednesday, May 23, 2007 at 02:43 AM in Economics, Income Distribution | Permalink  TrackBack (0)  Comments (30)


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